High hopes for Philippine oil well

Pulses are quickening at junior explorers
Nido Petroleum
and
Kairiki Energy
, which were due to start drilling their highly anticipated Gindara-1 exploration well in the Philippines last night.

Things have moved quickly on the well since Royal Dutch Shell added its considerable weight to the venture by sealing a farm-in venture to the deep-water SC54B licence in January, taking the bulk of the cost burden away from the juniors.

Shell is paying 75 per cent of the cost of the well up to a cap of $US24 million ($22.5 million) and any costs above that are to be shared pro rata. It is also reimbursing $US2.5 million of sunk seismic costs.

Estimates of the volume of oil in place at the large Gindara prospect top 600 million barrels, and potentially up to 1 billion. Nido puts the chance of exploration success at 40 per cent, more than double the worldwide average.

“In the greater scheme of things, this is twice as probable as the oil industry average for an exploration well," Kairiki Energy managing director Dr Mark Fenton told The Australian Financial Review in a television interview.

The well should reach its total depth of 3400 metres below the seabed in 15 to 16 days and initial results were expected in three weeks, Dr Fenton said.

The well is being drilled using the Atwood Falcon rig, which is under contract to Shell in Malaysia.

The Philippines, and in particular the Palawan Basin, has become something of a hotspot for exploration in south-east Asia. ExxonMobil, Chevron,
BHP
Billiton and Chinese giant CNOOC are all active there. Particularly favourable fiscal terms adds to the Philippines’ attractiveness for explorers.

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“The Philippines has always been out there as a potentially lucrative area for oil and gas," Dr Fenton said. “It’s been recognised that it has some of the best fiscal terms for oil and gas exploration and production in south-east Asia."

The increase in the crude oil price over the past two years had now driven a revival of interest from the majors, as well as smaller companies, he said.

The SC54B partners have recently identified a new prospect in the same licence, called Pawikan, which is similar or larger than Gindara.

“If we get any real encouragement on Gindara then this lead will come into play," Dr Fenton said. “It could rewrite the value of the area, this lead."

Nido, the operator, has 33 per cent of the licence, Kairiki holds 22 per cent and Shell 45 per cent.